Highlights

Singapore Exchange - Competition Looms

Date: 26/08/2021

Source  :  UOB KayHian
Stock  :  SGX       Price Target  :  11.65      |      Price Call  :  HOLD
        Last Price  :  9.85      |      Upside/Downside  :  +1.80 (18.27%)
 


  • HKEX recently announced the launch of a new MSCI A share index futures contract which is the direct competitor to SGX’s FTSE A50 index. While the FTSE A50 index has a relatively large turnover volume, the group’s multi-asset suite of product offerings could allow for customer stickiness while we also note that HKEX’s previous MSCI product launches have been fairly lacklustre.
  • Maintain HOLD with a target price of S$11.65.

Hong Kong Exchanges and Clearing Limited (HKEX) Launches New MSCI a Share Index Futures Contract

  • HKEX (388 HK) announced that it will launch a new China A- share index futures contract – on 18 Oct 21, with licensing from MSCI. This is a futures contract based on the performance of 50 key Shanghai and Shenzhen stocks and is the direct offshore competitor to Singapore Exchange (SGX, SGX:S68)’s FTSE A50 derivatives contract.

FTSE A50 futures with a relatively sizeable volume.

  • SGX’s FTSE A50 index futures have a daily traded value of US$7b with open interest of US$12b. Investors are able to hedge their positions in the Chinese markets by taking a position on the index futures. In FY21, FTSE A50 index futures accounted for approximately 52% of SGX’s equities derivatives volume traded. As the equities derivatives segment forms about 27% of the group’s revenue contribution in FY21, this suggests FTSE A50 has a revenue impact of 10-15% for SGX.
  • Average fee per contract for SGX’s equity, currency and commodity derivatives came in at S$1.34 in FY21, in which there were introductory fees for FTSE Asia expansion suite (eg. FTSE Taiwan Index). We opine that introductory fees were implemented during a competitive phase with HKEX (when HKEX was launching its MSCI Taiwan index futures).

Stock Impact

  • Assessing HKEX’s MSCI derivative China. Since HKEX’s launch of Stock Connect in 2014, it has been the key channel for international investors to access the A-shares market. Northbound average value traded has increased to RMB118b in 2021, growing at a CAGR of 72% since 2015. This is in line with the higher market capitalisation weightage of Chinese counters in the MSCI Emerging Markets Index. Ultimately, an A- shares derivative offering in the primary A-shares exchange in HKEX will put forth a challenge to SGX’s FTSE A50 volumes.

Earnings Revision & Risk

  • Recent volatility still a boost for FTSE A50. Recent volatility in the Chinese markets will likely still be a near-term boost. In Jul 21, FTSE A50 volume traded rose 20% m-o-m. A sensitivity analysis of the change in FTSE A50 volumes and contract fees is detailed in report attached below.

Valuation & Recommendation

  • Maintain HOLD with a target price of S$11.65. Our target could re-rate SGX alongside peers.
  • On a DDM basis (ROE: 30%, COE: 7%, growth: 4%), SGX's share price would trade at close to S$12.15, or an implied P/E of 30x FY22F earnings.

Share Price Catalyst

  • Secondary listings of foreign-listed entities.
  • Longer-than-expected period of trading volatility.
  • M&As.

Source: UOB Kay Hian Research - 26 Aug 2021

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Labels: SGX

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Chart Stock Name Last Change Volume 
SGX 9.85 -0.05 (0.51%) 1,920,700 

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